IT Enabled Competitiveness – An IT Growth-

Share Matrix

Abhishek Magre
 Patni White Paper

Copyright Patni Computer Systems Ltd., 2007. All rights reserved 2

PLEASE NOTE THE FOLLOWING IMPORTANT POINTS WHILE WRITING THE WHITE
PAPER:

Targeted towards the IT decision makers, the white paper

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Format Please use the attached template for writing the white paper
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be solved, the solutions that can resolve the problem and why
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Executive Summary
Introduction / Background
White Paper
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issues discussed in the first section
Conclusion
About the author(s)
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template to guide the flow of content.
 TABLE OF CONTENTS
Please Note The Following Important Points While Writing The
White Paper:..............................................................................................3

Table of Contents...................................................................................4

1 Executive Summary..............................................................................1

2 Introduction/Background ...................................................................2

3 Business and IT Alignment.................................................................4

4 Managing the Application Portfolio...................................................5

5 The Product Life Cycle.......................................................................6

6 The BCG Growth Share Matrix............................................................7

7 The IT Growth Share Matrix.................................................................9

8 BCG Growth Share Matrix and IT Growth Share Matrix................10

9 Possible Strategies for Alignment...................................................11

10 Conclusion:......................................................................................13

11 About the Author:.............................................................................13

12 References.........................................................................................13
1 EXECUTIVE SUMMARY
The organizations today are finding themselves between constantly changing
scenarios. In order to keep up with these dynamic environments they need to identify
on an ongoing basis what are there most profitable businesses and what not. The
growth-share matrix (from BCG) does the same for them. With changing business and
economic scenario, organizations are finding it difficult to protect positions of their
businesses in preferred quadrant on Growth-share matrix.
These businesses are supported by numerous IT applications some of which being
critical to the business and some not. Hence the businesses today aspire to have a
proper control over these applications in order to identify the critical ones among them.
The concept on application portfolio management focuses on bringing together
existing, planned and potential information systems and assessing their business
contribution.
This paper deals with strategies for aligning IT application with business objectives and
goals. In line with BCG matrix philosophy, the paper will present an approach for
identifying applications that needs to be harvested or replaced or whether they need
more investment for increasing their fitment to the overall business goals. To
accomplish this, the paper presents an approach for mapping the IT applications on
the BCG matrix so as to identify the value earners among them and those who are a
drag on the system. Representing IT application portfolio on BCG matrix will make it
easier for organizations to compare their business growth-share matrix with and IT
growth-share matrix, thereby identifying opportunities for enhancing the value creation
and competitiveness thru right set of application portfolio.

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2 INTRODUCTION/BACKGROUND
Major organizations today have a lot of IT Systems. These are a collection of different
systems and system connections. In order to streamline their operations, organizations
aspire to have a proper control over their IT systems.

The haphazard rate at which the large organizations have developed and procured IT
systems have created problematical Islands of Information and also Information
Labyrinths. On one hand these problems are growing, on the other hand dependence
on these information systems and the information technology is also growing.

Organizations today exist in environments which are complex and dynamic. The
competition is severe and hence such environments pose a lot of problems. One of
them is that they have to work with a plethora of information systems, and this is next
to impossible to control. When changes are being made in one specific information
system, other information systems must be changed as well. Another problem is the
inaccessibility of information to all the people within the organization. The information
is many times in islands of information. This tends to mean that decision often must be
made, without access to essential information that exists in the information system.

Another resistance to change is the time it takes to develop a new information system
or to terminate an existing one. Maintenance and management of existing system
requires enormous resources. It also takes a long time to terminate existing
information systems. Integrations with other systems are difficult to make without
making changes in existing information systems. This delays and makes the
development process even more expensive. The effects of the disturbances in an
information system are very difficult to isolate and the effects are reproduced easily in
other information systems.

Islands of information

Islands of information are one of the most common occurrences in today’s

organizations. This is a situation where two or more information systems, with content
that complements or overlaps, grow and develop separately from each other. The fast
growth of information technology use in organizations, combined with an inactivity and
inflexibility in existing information systems, results in other information systems
develop, combining islands of information in the organization

Islands of information create problems when different areas make their own
information systems and do not consider the whole activity’s need for cooperation. This
makes cooperation more difficult when important and actual information is not
available to the other information systems in the activity. Other problems that may
occur because of islands of information are poor information quality, duplication of
work, increasing costs and unclear areas of responsibility.

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 Island of information

Information labyrinths
Information labyrinths are a phenomenon where two or more information systems are
badly integrated with each other and cause different kinds of disturbances and
problems. Integration means connections to other information systems as well as
connections to the activity, which carry on within the information system. The
integration process is like creating bridges to link the process, without keeping in mind
the increasing complexities of the system as a whole. The information labyrinth and its
unforeseeable and permanently growing conditions, between the information systems
and the activity areas, leads to the fact that nobody gets control

Information labyrinths

Some of the problems concerning information labyrinths are their unforeseeability,

inflexibility, high administration costs and slow change.

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3 BUSINESS AND IT ALIGNMENT

The rapid pace at which IT is changing is creating dilemmas for the organizations.
More and more information is being delivered to more and more people, to such an
extent that people feel they are getting drowned in information. More money is being
spent on new technologies which will then provide even more information. Still, neither
the information, nor the IT technology is resulting in any Business Value. This is called
Information Paradox, a phenomenon which arises from the conflict between the widely
held belief that Information and investment in IT to provide that information is a good
thing, and the reality that we cannot demonstrate a connection between money spent
on IT and the Business results.

In this background, the concept of Business and IT alignment emerged, to justify the
spending in IT. The reason given was that IT spending is becoming so important that
executives expect good justification of their investments. Hence the need of aligning IT
with Business arises.

“The basic notion of alignment is that when things are in state of alignment, they
naturally or harmoniously work together to accomplish a common end. There is neither
friction nor drag between them; they perfectly compliment and reinforce each other.
Alignment has the basic property that those things in the state of alignment combine
effortlessly as though they were one.”

Before understanding IT, we must understand that on one hand they can have
expectations from IT; on the other hand they have responsibilities to IT. This becomes
clear from the schema in figure given below.

Responsibilities v/s Expectations for an IS Organization

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The implicit contract between IT enterprises rests on a counterbalancing set of
expectations and responsibilities. Enterprise executives have to fulfill their part of the
contract – leadership, decision making guidelines, cultivation of staff, and money – for
IT to reach its potential. But there exists a dichotomy between Business expectations
and IT Capabilities, which is shown in the figure below.

Dichotomy between Business expectations and IT Capability

4 MANAGING THE APPLICATION PORTFOLIO

Organizations have to manage different type of applications in different types of
domains. They have to assure there alignment with the business, in order to expect
business value from the applications. This is done by Portfolio Management. Portfolio
management is a tool with clear benefits; among them a holistic view of IT projects
across the enterprise and the alignment of IT with corporate strategy. The IT portfolio
is managed like a financial portfolio; riskier strategic investments (high-growth stocks)
are balanced with more conservative investments (cash funds), and the mix is
constantly monitored to assess which projects are on track, which need help and which
should be shut down.

A strong portfolio management program can do the following:

 Maximize value of IT investments while minimizing the risk

 Improve communication and alignment between IS and business leaders

 Allow planners to schedule resources more efficiently

 Reduce the number of redundant projects

There's no single right way to do IT portfolio management. Vendors, consulting

companies and academics offer many models, and often companies develop their own
methodologies. Off-the-shelf software is available from a variety of vendors. But there
are plenty of hurdles to doing it well. There are, however, best practices and key

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logical steps that can be taken from organizations which have integrated portfolio
management into the fabric of IT management.

The theories that we have found useful for future analysis of the Application Portfolio
are Product Life Cycle, the Growth Share Matrix and the Application Portfolio Matrix or
IT Growth Share Matrix.

5 THE PRODUCT LIFE CYCLE

A company’s product portfolio can be seen through the product life cycle that describes
the changes a product goes through over time. The product life cycle shows how a
product develops over time from concept via acceptance through high demand to
eventual decline, according to market demand. Because applications can be seen as
products, we use the product life cycle as an application life cycle to find out what kind
of application portfolio the company has.

A company’s products are usually being developed from the product life cycle. It often
takes a long time before a new product becomes profitable on the market. At the same
time, mature and profitable products are being threatened by other new products. That
is why a company has to have balance in its product portfolio so that there are mature
products that can generate income to pay for the development of future replacements.

The Product Life Cycle

The product life cycle consist of four phases; the Emerging phase, the Growth
phase, the Maturity phase and the Decline phase (see fig. above).

The Emerging phase is characterized by the few users of the product, because the
product has just been released in the market. Organizations do not expect any profit in
the emerging phase, because the expense for distribution and marketing are major
relative to the number of sold products. The product is expensive because of the poor

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quantity. This phase is insecure, the product is not yet fully tested and that is another
reason for the high price. Often there are few or no competitors with similar products in
the emerging phase.

In the Growth phase the number of users of the product increases the profit. The
product has been accepted on the market and consumers start buying the products..
The price continues to be high depending on the demand. The marketing cost
continues on the same level to meet the competitors and to increase its place on the
market. This is the phase when organizations see the opportunity to make profits as
the price of the product is not declining as fast as the cost of the product is.

At some point of time the product’s growth rate starts to decline and the product enters
the Maturity phase. In this phase the product normally exists longer than in the other
phases. Most of the existing products are in the maturity phase and therefore this
phase is seen as the most critical for the product’s success. At this point the capacity is
bigger for the company than the demand on the market and the price becomes the
major thing to compete with.

During the Declining phase the demand declines. The product has aged and the
customer’s preferences have changed. The profitability declines and companies have
to leave the market. Companies with one single product should, before this phase,
design a new and better product so that they can enter the growth phase

6 THE BCG GROWTH SHARE MATRIX

The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce
Henderson of the Boston Consulting Group in the early 1970's. It is based on the
observation that an organization’s business units can be classified into four categories
based on combinations of market growth and market share relative to the largest
competitor. Market growth serves as a proxy for industry attractiveness, and relative
market share serves as a proxy for competitive advantage. The growth-share matrix
thus maps the business unit positions within these two important determinants of
profitability.

This framework assumes that an increase in relative market share will result in an
increase in the generation of cash. This assumption often is true because of the
experience curve; increased relative market share implies that the firm is moving
forward on the experience curve relative to its competitors, thus developing a cost
advantage. A second assumption is that a growing market requires investment in
assets to increase capacity and therefore results in the consumption of cash. Thus the
position of a business on the growth-share matrix provides an indication of its Cash
generation and its Cash consumption. The cash required by rapidly growing business
units could be obtained from the organization's other business units that were at a
more mature stage and generating significant cash. By investing to become the market
share leader in a rapidly growing market, the business unit could move along the
experience curve and develop a cost advantage.

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 BCG – Growth Share Matrix

 Dogs - Dogs have low market share and a low growth rate and thus neither
generate nor consume a large amount of cash. However, dogs are cash traps
because of the money tied up in a business that has little potential. Such
businesses are candidates for divestiture.
 Question marks - Question marks are growing rapidly and thus consume
large amounts of cash, but because they have low market shares they do not
generate much cash. The result is large net cash consumption. A question
mark (also known as a "problem child") has the potential to gain market share
and become a star, and eventually a cash cow when the market growth slows.
If the question mark does not succeed in becoming the market leader, then
after perhaps years of cash consumption it will degenerate into a dog when the
market growth declines. Question marks must be analyzed carefully in order to
determine whether they are worth the investment required to grow market
share.
 Stars - Stars generate large amounts of cash because of their strong relative
market share, but also consume large amounts of cash because of their high
growth rate; therefore the cash in each direction approximately nets out. If a
star can maintain its large market share, it will become a cash cow when the
market growth rate declines. The portfolio of a diversified company always
should have stars that will become the next cash cows and ensure future cash
generation.
 Cash cows - As leaders in a mature market, cash cows exhibit a return on
assets that is greater than the market growth rate, and thus generate more
cash than they consume. Such business units should be "milked", extracting
the profits and investing as little cash as possible. Cash cows provide the cash

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 required to turn question marks into market leaders, to cover the
administrative costs of the company, to fund research and development, to
service the corporate debt, and to pay dividends to shareholders. Because the
cash cow generates a relatively stable cash flow, its value can be determined
with reasonable accuracy by calculating the present value of its cash stream
using a discounted cash flow analysis.

Under the growth-share matrix model, as an industry matures and its growth rate
declines, a business unit will become either a cash cow or a dog, determined solely by
whether it had become the market leader during the period of high growth. While
originally developed as a model for resource allocation among the various business
units in a corporation, the growth-share matrix also can be used for resource allocation
among products within a single business unit. Its simplicity is its strength -the relative
positions of the firm's entire business portfolio can be displayed in a single diagram.

7 THE IT GROWTH SHARE MATRIX

The application portfolio concept means bringing together existing, planned and
potential information systems and assessing their business contribution.

Applications need to be planned and managed according to their lifetime and future
contribution to the business. The IT Growth Share Matrix considers the contribution of
IS/IT to the business now and in the future based on industry impact. The model
proposes an analysis of all existing, planned and potential applications into four
categories based on assessment of the current and future business importance of
applications. These categories are the same as in the BCG Growth Share Matrix. An
application can be defined as Stars, Question Marks, Cash Cows or Dogs,
depending on its current or expected contribution to the business success.

STARS QUESTION MARKS

CASH COWS DOGS

IT Growth Share Matrix

 Stars are those applications that are strategic and able to deliver the greatest
business value. These are applications that the company strategically trusts on
to reach future success. They are developed to meet the business’ goal and to
realize business advantages as much as possible. The applications have a

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 flexible solution and can be adapted to meet the changes that will occur in the
activity’s environment.

 Question Marks are High potential applications that can be very important to
reach future success, but they are still uncertain. The potential value for the
activity can be large but it is not confirmed. These applications are
characterized by a rapid prototyping development with a power to refuse
failures before spending a lot of resources.

 Cash Cows are the key operational applications on which the organization is
dependent on in the present-day situation to reach success. The applications
are of a high quality with solutions of long duration and effective data handling,
to make sure of stability and low costs by the changes over time.

 Dogs are the applications that support the activity but are not in strategically
valuable category. The Dog applications are not critical for the organization’s
future if they are not wasteful with valuable resources or if the market share is
being changed. The applications often cost less, have long-lived solutions and
usually have a compromise between the users to hold costs down.

8 BCG GROWTH SHARE MATRIX AND IT GROWTH

SHARE MATRIX
There are some obvious resemblances between the IT Growth Share matrix and the
Boston matrix. The similarities are important, since products or applications must be
managed according to their contribution to the business over an extended life cycle.
Applications and products both have life cycles, and they will move around the matrix
over time. Both applications and products require investment funding. Applications and
products need to be managed and have resources allocated in accordance with their
business importance. The Boston matrix offers useful input to the application portfolio
matrix because it reflects the competitive business environment.

IT Question Mark applications resemble Question Marks products due to the degree
of uncertainty of success and the amount of risk. The objective with these applications
and products is to identify them and then try to transform them into success into the
next phase of the life cycle curve. Both of them are risk investments. They need to be
carefully assessed as to whether or not they are strategically important. A problem that
can occur with question mark products is that they satisfy the designer but not the
customer. There is a similar problem with applications. They satisfy the technical
professionals but not the users. This problem must be avoided. Prototyping should be
undertaken to find out how the organization can benefit most from a new use of IT and
not to discover all that the technology can do. Many current new IT applications are
producing disappointing results due to evaluations that are prejudiced by existing
activities to which they are attached. There is great need to have control over the
costs.

Star Application or Star product is the one that the company is dependent upon for
future success. The value can only be judged by its effectiveness against the

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competitors. In order to increase the value added by the system, it is important to know
what the system does and how it does it. Whether to spend money or not will be based
on both the return on investment calculations and on the risk to the business if the
system fails to stay ahead of the competition. In order to achieve innovation the
business system user has to decide how the systems add value to the business
process. Most applications in this box should be associated with an information
intensive part of the business. The process of value adding is expensive and it requires
a lot of resources.

As with its Cash cow products, an organization expects its Cash Cow Applications
to make a significant contribution to the business. This depends on keeping the
product or the system in line with current market and business demands in the most
effective way. Cash Cow applications should only be enhanced and redeveloped in
response to changes in the business that threatens to put the business at risk. The risk
should be quantified to ensure that the expenditure involved gives benefit over time. If
the applications are expected to have a long life they must have high quality. Low
support costs depend on quality control, data and processing integrity and consistency
of the system within the network of the organization’s system. These applications can
not be afforded the same resources as the Star applications. It is best to share
resources and expertise with other systems to reduce the costs. The best way of
managing these applications is to reduce costs while not reducing the business value
of the system.

Dog applications and Dog products are not critical to an organizations future unless
they waste valuable resources or if the market place changes. To reduce an
organization’s commitments to systems, the organization can use software packages
or outsource their operations and support. Alternative solutions are available for these
applications and service/package providers can make a profit on handling similar
applications in many companies. This disinvestment process will automatically reduce
the pace of enhancement to that of the generally available service or package. In
general systems should not be enhanced unless the economic implications are
absolutely clear.

9 POSSIBLE STRATEGIES FOR ALIGNMENT

The following matrix shows some possible strategies that can occur on the Growth
Share Matrix. It also shows the good and the bad strategies for the specific cases.

These are good strategies.

These are bad strategies.

As per the figure given below, the good strategies include:

 Selection of some Question Mark applications and moving them into Star
applications category. This would require investments to be made into the

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 Question marks so it has to be ensured that the question mark applications are
those which have scope of adding business value.

 On analysis, organizations might come up with a set of Question Mark

applications which do not seem to be in proper fit with Business goals and do
not add much value to the business. It does not serve any purpose to invest in
those applications. Rather disinvesting such applications makes better sense.

 Moving some Star Application into Cash Cow category. This happens when a
company identifies some of its applications who are in maturity stage, and can
be commoditized to bring in more revenues. These are applications which if
sold with lesser margins might bring in more revenues for the firm. So a
conscious decision to move to Cash Cows category is also a good one.

 Disinvesting Dog applications which can be outsourced or some better support

system can do those activities better, is a good strategy. This helps the
organization to focus its efforts and investments to those activities which is its
core competence and adds value, rather that wasting time and money on those
activities which do not have any critical or strategic implication on the
business.

STARS QUESTION MARKS

Selection of some Disinvest the Rest

CASH COWS DOGS

Disinvest

Alignment Strategies

 Trying to move unworthy applications from Question marks to Star category,

which needs investments and efforts to be made, and which do not add any
value to the customer or the business, is a bad strategy. Such applications will
later fall into the Dog category, which will mean a waste of resources. If

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 properly planned and analyzed such applications can be discarded at the first
place itself

10 CONCLUSION:
The basic objective of this paper was to identify a strategy to analyze the As Is state of
the IT Applications of an organization, and depending upon that propose the To Be
state. The IT Growth share matrix helps the management to analyze its IT Portfolio on
parameters that determine their business value and criticality for the business. Then
based on the Life Cycle stage, a decision can be taken as to how the future portfolio
should look like and the organization can start working on aligning the present portfolio
to suit future requirements and the business goals.

11 ABOUT THE AUTHOR:

Abhishek Magre is working as a Business Analyst in Growth Industries Business Unit
in Patni for the past 19 months. He is a B.E (Mech) from GEC Jabalpur, and holds a
Post Graduate Diploma in Management (PGDBM) from Xavier Institute of
Management, Bhubaneswar.

Abhishek Magre is a Business Analyst having over 4 years of experience spanning

across CAD/CAM, IT Operations and Pre-Sales. Abhishek has been a part of the
Proposal Management team in GI for the past one and a half year, and was
responsible for handling client requirements in the form of RFI/RFP’s.

12REFERENCES
• APPLICATION PORTFOLIO MANAGEMENT - A starting point from the
current situation at Volvo Car Corporation – Master Thesis by Cecilia Gottling
and Louise Torgnysdotter, Department of Informatics School of Economics and
Commercial Law, Göteborg University
• Analysis of the project and application portfolio management of the
Pharma Development Biometrics Informatics Deptt of Roche – By Amaru
Theodore

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